Drop shipping benefits manufacturers

Drop shipping benefits retailers and manufacturers the most, where they have adopted a high degree of electronic collaboration. This is according to research from software company DiCentral and the Centre for Supply Chain Research at Lehigh University.

The study, “Supply Chain Collaboration in Transformative Vertical Industries: Implications of Omnichannel and Dropshipping,” explores the impact felt by retailers and manufacturers of evolving consumer shopping behaviours.

The participants of the research shared their operational and financial implications they found associated with making the transition to online and e-commerce from pure bricks and mortar, particularly when their items were shipped directly from the manufacturers.

Within those, those who adopted a high degree of electronic collaboration have benefited most from drop shipping.  Retailers have greater visibility into the manufacturers’ behaviours thus increasing confidence that products ordered are received and shipped within given time frames.

Increased revenues occurred for those manufacturer respondents who implemented drop shipping in 66% of cases. Those that drop shipped for no more than 40% of their total business appear to have done the best.

Retailers noted a lack of systems integration such as WMS to be the greatest obstacle to drop ship implementation. Other barriers included a lack of executive involvement and budget constraints. And for manufacturer, competing priorities followed by lack of systems integration are the main obstacles.

“Enterprise drop ship has been around for decades but has recently gained popularity due to the growing consumer expectations for broader assortment and category selection,” said Thuy Mai, president and chief executive of DiCentral. “In an effort to improve the customer experience and increase revenue, retailers are expanding their virtual inventory without incurring additional carrying and fulfilment costs by utilizing drop ship programs.”

“The drop ship model is positioned as a vital component of the modern retail landscape,” added Dr Zach G Zacharia, associate professor of supply chain management at Lehigh University. “Clearly, the more we understand how drop ship operates, the better prepared retailers and manufacturers will be to take advantage of the opportunities and avoid the risks that will arise in this new retail reality.”

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